The tax revenues may be lesser over the long term as the new 50% tax rate for people earning more than £150000 comes into action on Tuesday. The Institute of Directors warned today that the tax will simply drive top earners abroad. The group said that the new tax may be helpful to raise revenue in the short term, while it could actually lead to lower overall tax revenues over the medium and long term.

The Government had announced the new tax bracket in the Budget last April. According to the new tax rates, people, earning more than £150000, will have to pay 50% tax on their income. Also the high earners have to pay a new
42.5% tax on their dividends.

According to the government estimates, the new tax rates would generate additional revenue of £2.66 billion per year for the Government by the 2012/2013 tax year. As per the government record, there are over 300000 people who earn more than £150000 per year.

On the other hand, the Institute of Directors said that the new tax rate will impact badly on business confidence, foreign investment and entrepreneurial aspiration. The group said that now the high earners will try to take advantage of tax planning opportunities to reduce the amount of money paid as tax.

The group also said that now the directors of multinational companies would try to move their parent companies outside of the UK in order to save the taxes. The Institute of Directors said that all these factors could lead to the lower tax revenues in the long term.